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United posts loss but sees sunnier skies ahead

Earns UAL
United Airlines' parent company posted a smaller-than-expected third quarter loss.Kim Johnson Flodin / AP
/ Source: The Associated Press

United Airlines said on Tuesday that it's seeing early signs of a recovery in business travel as it reported a smaller-than-expected quarterly loss.

The recession has hurt business travel at all the big airlines, and United and other carriers have used discounts to fill seats. So while airlines would welcome the return of the business traveler, what they really want is the return of that traveller's willingness to pay top dollar to fly around the world.

Even though United third-quarter traffic fell only 2.9 percent during the quarter, revenue dropped by 20.3 percent to $4.43 billion.

"There's no opportunity here for a full revenue recovery until we get premium cabin pricing back," said United President John Tague on a conference call with analysts.

He said it's not clear how long that will take, "but we are seeing progress, which is quite encouraging from where we were just three, four, five months ago."

Meanwhile they're losing money.

United parent UAL Corp. said it lost $57 million during the quarter, or 39 cents per share. Not counting fuel hedges and accounting issues it said the loss would have been 43 cents per share. That was far better than the loss of 94 cents per share expected by analysts polled by Thomson Reuters.

The third-quarter loss also was much smaller than the $792 million loss during the same period last year, which was driven by accounting for fuel hedges.

As one of the two big U.S. carriers to Asia, United's route network is skewed toward business travel. That has hurt United during the recession but the Chicago-based airline hopes it will help it during a recovery.

Glenn Tilton, UAL chairman and CEO, pointed to comments made by Caterpillar on Tuesday that demand is picking up in China.

"That obviously has implications for us," he said.

"Slowly but surely, revenue appears to be improving," JP Morgan analyst Jamie Baker wrote in a note to investors. He said he now expects a smaller decline in fourth-quarter revenue "to reflect our belief that demand trends — corporate in particular — are gradually starting to accelerate."

Passengers paid an average of $13 each in charges for add-ons such as checked baggage, better coach seats, and faster trips through boarding for a total of $289 million in fees for the quarter. The per-passenger average rose almost 13 percent compared to a year earlier.

United reduced flying by 8.2 percent compared to the same period last year. It managed to cut costs at the same time, though, with spending for each mile it flew dropping 1.6 percent, not counting fuel and some accounting charges.

United said its fourth-quarter, systemwide capacity would shrink 3.2 percent to 4.2 percent. It said 2010 system-wide capacity would range between a half-percent up and a half-percent down.